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O’REILLY AUTOMOTIVE 2008 ANNUAL REPORT PG.43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2007. Upon completion of the Company’s acquisition of CSK on July 11, 2008, the investment in CSK stock was included as a component of
the purchase price of CSK and allocated preliminarily to the assets acquired and liabilities assumed of CSK. e Company did not own any
available-for-sale securities on December 31, 2008.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is provided on a straight-line method over the estimated useful lives of the assets and includes
depreciation related to assets recorded under capital lease agreements. Leasehold improvements are amortized over the lesser of the lease term or the
estimated economic life of the assets. e lease term includes renewal options determined by management at lease inception for which failure to
renew options would result in a substantial economic penalty to the Company. Maintenance and repairs are charged to expense as incurred. Upon
retirement or sale, the cost and accumulated depreciation are eliminated and the gain or loss, if any, is included in the determination of net income
as a component of other income (expense). e Company reviews long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
Property and equipment consists of the following:
(In thousands) Original Useful Lives December 31, 2008 December 31, 2007
Land $ 281,814 $ 220,950
Buildings and building improvements 15 – 39 years 638,976 501,598
Leasehold improvements 3 – 25 years 268,574 189,097
Furniture, xtures and equipment 3 – 20 years 556,706 429,217
Vehicles 5 – 10 years 127,709 102,665
Construction in progress 65,753 36,252
1,939,532 1,479,779
Less: accumulated depreciation and amortization 489,639 389,619
Net property and equipment $ 1,449,893 $ 1,090,160
e Company capitalizes interest costs as a component of construction in progress, based on the weighted-average rates paid for long-term borrowings.
Total interest costs capitalized for the years ended December 31, 2008, 2007 and 2006 were $2,318,000, $2,554,000 and $2,639,000, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS
e accompanying consolidated balance sheets at December 31, 2008, and December 31, 2007, include goodwill and other intangible assets
recorded as the result of previous acquisitions. Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
requires the Company to assess goodwill and indenite lived intangible assets for impairment rather than systematically amortize goodwill
against earnings. e Company reviews goodwill and indenite lived intangible assets for impairment annually or when events or changes in
circumstances indicate the carrying value of these assets might exceed their current fair values. e goodwill impairment test compares the fair
value of a reporting unit to its carrying amount, including goodwill. e Company operates as one reporting unit, and its fair value exceeds its
carrying value, including goodwill. erefore, the Company has determined that no impairment of goodwill existed at December 31, 2008,
and December 31, 2007.
OPERATING LEASES
e Company’s policy is to amortize leasehold improvements over the lesser of the lease term or the estimated economic life of those assets.
Generally, for stores the lease term is the base lease term and for distribution centers the lease term includes the base lease term plus certain
renewal option periods for which renewal is reasonably assured and failure to exercise the renewal option would result in a signicant economic
penalty. e calculation for straight-line rent expense is based on the same lease term.
NOTES RECEIVABLE
e Company had notes receivable from vendors and other third parties amounting to $28,221,000 and $32,119,000 at December 31, 2008 and
2007, respectively. e notes receivable, which bear interest at rates ranging from 0% to 10%, are due in varying amounts through August 2017.
SELF-INSURANCE RESERVES
e Company uses a combination of insurance and self-insurance mechanisms to provide for the potential liabilities for workers’ compensation,
general liability, vehicle liability, property loss, and employee health care benets. With the exception of employee health care benet liabilities,
which are limited by the design of these plans, the Company obtains third-party insurance coverage to limit its exposure. e Company
estimates its self-insurance liabilities by considering a number of factors, including historical claims experience and trend-lines, projected
medical and legal ination, and growth patterns and exposure forecasts.